The second revision of the US national income accounts for the first quarter of 2014, released today by the Bureau of Economic Analysis, showed that real GDP fell at an annual rate of -1.0 percent. The advance report had shown an annual rate of increase of 0.1 percent. Today's report also showed that corporate profits fell sharply in the quarter.
As the following table shows, most of the change in the numbers between the advance and second estimates for the quarter came from a much faster rundown of inventories than had previously been reported. Inventory depletion contributed -1.62 percentage points to growth, compared with the advance estimate of -.57 percent. Fixed investment was marginally higher than previously reported.
Other sectors showed less change. Consumption was fractionally stronger than previously reported. Government spending decreased a bit more than reported earlier, with all the change due to a bigger decrease at the state and local government level. Exports decreased a bit less than previously estimated, but the decrease in net exports was slightly greater because imports rose, rather than decreasing slightly, as reported in the advance estimate. (Imports are entered in the national income accounts with a negative sign, so the positive 0.24 percentage points for the advance estimate shows a decrease while the -.12 points for the second estimate shows an increase.)
Today's data release included the first look at corporate profits for the first quarter. Profits, which have been at or near record highs for the past two years, fell precipitously. Corporate profits before tax with inventory valuation adjustment fell by 10 percent, while after tax profits fell by 14 percent. As a share of GDP, corporate profits were the lowest since 2010. However, as the following chart shows, after-tax profits still account for a larger share of GDP than they did even at the peak of the pre-recession boom, and before-tax profits also remain well above their historical averages.
The decrease in real GDP in the first quarter is particularly unwelcome since it comes at a time when official estimates show that the US economy is still operating well below potential. Some observers still think that the first quarter downturn may be an aberration caused by harsh winter weather. Additional data on employment and output to be released over the next two months will show whether that was the case.
Follow this link to view or download a slideshow with complete charts of the latest GDP and profits data.